Shale drilling is big business, but for many, the effects are small
July 3, 2011 8:00 AM
Chartiers Supervisor Harlan Shober at the MarkWest gas processing plant in the township.
By Jonathan D. Silver Pittsburgh Post-Gazette
Plenty of southwestern Pennsylvanians view Marcellus Shale as a driving economic engine of the region's future.
"We're just scratching the tip of the iceberg," said Donora manager Dennis Fisher. "These wells are going to produce for the next 45 to 50 years, and the economic impact is going to be tremendous."
But who exactly will reap the rewards?
A Pittsburgh Post-Gazette survey of municipalities in the Marcellus hotbed of Washington County reveals a scattered economic boon produced by the advent of drilling rigs, compressor stations, pipeline networks and processing plants.
Many residents have benefited directly; many more have not.
To be sure, the state overall has gotten wealthier through the influx of Marcellus Shale-related tax revenues.
On a local level, landowners leasing mineral rights throughout the county have pocketed tidy sums. A variety of small businesses have thrived. Jobs have been created. Some municipalities have raked in the cash through clever use of special fees on the drilling industry. And Canonsburg's Southpointe office park has blossomed with tenants related to the natural gas industry.
By and large, though, those direct impacts are limited.
No hard numbers exist detailing how many people have leased their mineral rights. But Range Resources, the area's biggest player, said that since 2008, it has made about $800 million in upfront payments to more than 10,000 landowners in Washington County, which averages out to $80,000 per leaseholder.
That amounts to perhaps 5 percent of the county's 207,000 residents.
Range estimates that this year it has already paid out another $75 million in royalties.
"That $75 million is pretty much all in Washington County and paid to a relatively small number of households, when compared to the entire county," Range spokesman Matt Pitzarella said.
What local officials say
Officials from a number of the county's 66 boroughs, cities and townships report little or no economic impact or improvement in quality of life for their residents and communities as a result of Marcellus activity, with one general exception: better roads -- repaved by the companies that ruined them in the first place.
In some locales, drilling has not yet occurred; in others it likely never will. In more urban areas, there are few landowners with large tracts to lease.
"It hasn't been any impact so far," said Supervisor Robert Mercante of West Bethlehem, which is home to a handful of well pads on private property. "The ones that benefit are the property owners where the well sites are. No one else has benefited that I know of."
Mr. Mercante did note that West Bethlehem earned $19,000 this year in permit fees for companies running natural gas pipelines across roads. That's about 6 percent of the township's $300,000 budget, which is already hamstrung by earmarking up to a third each year for road repaving.
Mr. Pitzarella points to the combination of higher tax revenues, job creation and lower, predictable energy prices as "a strong enough argument that all Pennsylvanians are already benefiting. We're not going to be the economic silver bullet for Pennsylvania, but we are playing a major role and will for several generations."
Some communities -- such as tiny Coal Center, with 96 people and a handful of streets, and densely populated Charleroi, with 4,871 residents spread over eight-tenths of a square mile -- have no drilling activity occurring and realize no direct economic benefit.
"We're status quo," Charleroi manager Robert Hodgson said in describing the impact of Marcellus Shale.
Other townships and boroughs have capitalized on the nascent industry. Chartiers and Mount Pleasant, for instance, have been savvy, earning revenue windfalls by imposing fees for pipelines and well permits, respectively.
Chartiers took in about $100,000 in permit fees from MarkWest Energy for allowing it to run a natural gas pipeline through a 60-acre municipal parcel that is a wilderness area. It racked up another $108,000 for leasing rights to 31 acres of parkland.
Chartiers manager Samuel Stockton calculated that earned income taxes to the community from people employed in the Marcellus Shale industry amounted to an extra $45,000 since 2008.
Mr. Stockton -- like many other local officials -- also pointed to the benefit of having gas companies repair municipal roads destroyed by the heavy trucks used by the industry. He estimated the value to Chartiers at $12 million.
"They built them in ways we could never afford to do," Mr. Stockton said.
But not everyone has had the same experience. Phillip Podroskey, a supervisor for West Pike Run, said he was unhappy with the quality of repair on roads damaged by the drilling industry.
"I say they smashed the roads all to hell. That's an economic impact. What they're bonded for nowhere covers the cost of repairing that road," Mr. Podroskey said. "What we've been discovering is that they come in and say, 'Oh, yeah, we'll repair the roads.' They put this sub-standard material on it. After two years they're long gone, and the road is a pile of gravel."
Mount Pleasant, which has steadily raised its gas-well registration fees to the current $1,000, earned $21,000 last year, up from $3,750 in 2009.
Range's Mr. Pitzarella cites Mount Pleasant as a test case since there has been so much drilling there. He lists spikes in realty transfer taxes, appraised values and property taxes, which he believes are directly linked to drilling by Range.
Litigation in some places
Other places have not been so lucky. Blaine and Dunlevy, small communities with miniscule budgets and little wiggle room for extra expenses, have been forced to lay out thousands of dollars in legal fees to cover the costs of litigation over issues pertaining in whole or in part to the natural gas industry.
Blaine Black, solicitor for Dunlevy, said the borough and other small towns face the same quandary: how to accommodate the logistics of the natural gas industry when local infrastructure is lacking.
"Unfortunately a lot of municipalities throughout the region are facing similar problems," Mr. Black said. "These companies are much bigger than us, and I'm sure their daily operating budget exceeds our annual budget. That's where we are."
Dunlevy is in court, having been sued by Mon Rail Terminal Inc. The company owns a 28-acre parcel in adjacent Speers with about a half-mile of frontage along the Monongahela River. Company president Jeffrey M. Umbel, 66, of Fallowfield, said the only access to the property is through Dunlevy.
Mon Rail Terminal signed contracts with natural gas companies, including Antero Resources, to sell water from the river for hydraulic fracturing. But before a single drop could be hauled out, Dunlevy objected, fearing that scores of tri-axle tanker trucks a day would motor through on the way to Speers.
"We had some issues with the proposal. We're not trying to stop it entirely, but we have some concerns about safety, use of our streets; we have some ordinances that are in question," Mr. Black said.
Mr. Umbel said he tried to work with the borough to no avail. He lost his contracts and sued Dunlevy last year. The case is pending.
"It's not like a billion-dollar company fighting with Dunlevy. It's not like it's Range Resources or Chesapeake. It's a small businessman wanting to use his property that he's paid taxes on for years and years and years and the borough saying, 'No, you can't use it for that,' " Mr. Umbel said. "It's a complete constitutional violation."
Dunlevy has spent several thousand dollars on its court case, significant for a place with an annual budget of less than $100,000, according to Mr. Black.
"We've been threatened with an economic claim if this doesn't go through," Mr. Black said. "It just goes to show the impact on little towns. We just don't have the infrastructure. ... But we're being forced to litigate issues like this."
In 2009, Blaine's legal fees pertaining to the fossil-fuel industry totaled nearly $15,000 -- a full 10 percent of the township's budget.
At the time, Blaine was defending itself against Penn Ridge Coal and Range Resources, which sued over two highly restrictive ordinances promoting local rights and trying to corral corporate rights. Two decisions by a federal judge effectively wiped out large parts of the ordinances.
With litigation behind it, Blaine rang up no legal expenses pertaining to the oil and gas industry last year or so far this year.
Even Mount Pleasant has seen the flip side of higher tax revenue. Last year, the township paid nearly $36,000 in attorney fees. Of that, almost $30,000 -- 83 percent -- was related to oil and gas activity.
Weighing gains and losses
Donora has also seen both sides of the coin. It leased acreage in Palmer Park for drilling, but at a pittance of $10 per acre. However, the borough last year earned $27,000 by selling a right-of-way for 24-inch natural gas pipeline, part of a 110-mile line that will stretch from Greensburg to West Virginia.
Mr. Fisher, the Donora manager, believes the best is yet to come.
"You're probably looking -- just a crude estimate -- maybe seven to 10 years before you see a significant impact because the spin-off businesses have just barely been started," Mr. Fisher said.
He added that companies associated with the Marcellus play want to buy land from the borough's redevelopment authority, but said it is a "slow-moving" process because it is still early in the drilling boom.
In Buffalo, the impact of Marcellus has been largely revenue neutral for the community. Fees for building, grading, conditional use, building and electrical permits associated with compressor stations have brought in $13,590.
But that money is hardly padding for Buffalo's budget.
"Normally these fees collected through the permits that have to be issued to the operators etc. will offset the fees the township must incur for legal fees and engineering fees that ultimately accompany these projects," Buffalo Supervisor Stephanie Gallagher said.
Some communities are treading carefully when it comes to making money off shale.
Peters, the county's most populous spot with more than 20,000 residents, sought bids last year for leasing more than 300 acres of township land.
"We received a fairly lucrative proposal, but the township chose to not accept it at this time for a number of reasons, in part because we needed to develop our ordinance first," manager Michael Silvestri said.
Asked how Marcellus Shale activity has affected Peters, Mr. Silvestri replied, "No direct economic benefit. It's hard to quantify as far as any benefits to housing and restaurants and retail. We don't get any direct revenues from any sources on this."
Individual residents in Peters have leased land, but drilling cannot commence until the township irons out its ordinance, which it hopes to do this summer.
"Washington County, overall, I think is seeing an economic upswing because of the drilling activity," Mr. Silvestri said. But as for whether the average Peters resident is benefiting? "On the whole, I'd say probably not."
That perspective is echoed far and wide throughout the county, where those who extol the promise of Marcellus Shale talk about higher tax revenues and a ripple effect of the boom on local businesses and workers.
In May, the state Department of Revenue released a report that claimed more than $1 billion in corporate taxes from Marcellus Shale-related activity has flowed into state coffers since 2006. More than $200 million more came in from personal income taxes due in large part to Marcellus Shale lease payments, royalties and asset sales, the state said.
Local officials point to any number of restaurants, hotels, small business owners and landlords who have benefited from drilling companies coming to town.
Workers toiling in Washington County have to eat, gas up their vehicles, rest their heads, buy spare parts and purchase other goods and services, all locally.
Drilling companies have to hire employees and, as a result, some communities have reported bumps up in their earned income. Also on the rise in certain places are realty transfer taxes and fees for a range of permits such as grading, zoning and driveway access.
Hard numbers, however, are tough to come by. One of the few places to tally them has been Chartiers, which last year took in $36,000 in local wage taxes, $5,000 in local service taxes and more than $50,000 in property transfer taxes in 2010, according to Supervisor Harlan G. Shober Jr., who is running for county commissioner.
Contrast that with a place like Burgettstown, where there is no drilling activity and borough officials are adopting a wait-and-see approach as surrounding Smith anticipates drilling next year.
James Reedy, Burgettstown council vice president, said he expected local hardware stores, machine shops and landlords to make some money when the drilling rigs come to the area. But, he said, not "Joe Schmo."
James H. McCune, a Washington County lawyer and Marcellus booster whose firm does oil and gas work, looks at it this way: "If 5 percent are benefiting, that's a wonderful thing. It sure beats the hell out of 0 percent benefiting."
Good corporate citizenship
In lieu of trying to force the natural gas industry to pay up through fees, some places count on the drilling industry to be a good corporate citizen.
Mr. Podroskey of West Pike Run said he plans to solicit help from Range in repaving a road leading up to a newly refurbished bridge while the driller is doing other roadwork in the area.
"We'll see what they do. Everybody tells us Range is pretty good as far as public relations, so we're going to hit them. We need playground equipment," Mr. Podroskey said.
Tyler Linck, manager of South Franklin, said Range this year sponsored a St. Patrick's Day event for the local park board. And in Peters, several companies have sponsored a concert-in-the-park event.
Mr. Pitzarella estimated that Range has given more than $5 million since 2008 to local governments and charities, mostly in Washington County.
He cited donations to the United Way, creation of a Future Farmers of America scholarship fund, funding for Washington County households that rely on the federal Low Income Home Energy Assistance Program and numerous other donations of money, time and expertise.
"We have a responsibility to make certain that the places where we work are better than before our work began, and charitable support and volunteerism is a big part of that effort," Mr. Pitzarella said.
Some say that one way to ensure the broadest possible benefit of Pennsylvania's Marcellus Shale deposit is to enact some sort of local impact fee, the topic of intense debate in Harrisburg.
Currently, in the estimation of Mr. Umbel, the businessman wrangling with Dunlevy, the state tax revenue from Marcellus activity "goes to the general fund and it gets distributed to pet projects" instead of being redistributed fairly to the communities from which it is extracted.
Not only that, but the gas produced in Pennsylvania might find its way to end users in places such as Baltimore, Boston, New York and Philadelphia, he said.
"When you say people right here in Washington County don't benefit," Mr. Umbel said, "I guess you could make a case on that unless there was some sort of tax put on it."